Observations: Plaza 2.0 bid, not offered

Causes and consequences of tensions in the global political economy

Photo by 金 运 on Unsplash

Expectations are rising for some form of “Plaza Accord 2.0” to be announced at the G20 Finance Ministers’ meeting on 12-13 October.  Anticipation stems from an increasingly popular narrative that the dollar’s unstoppable rise is “breaking” global financial markets and increasing systemic risk.  A corollary view is that the dollar’s surge is being caused by unnecessarily tight Fed policy.  Both narratives are false and any international accord to halt the dollar’s ascent would be either folly or the precipitant of a systemic risk event.

This inaugural Observations – application of the Thematic Markets framework to major market events, questions or misperceptions – is also the first in a series on the causes and consequences of the myriad global tensions driving recent policy and market volatility.  Part I explains why coordinated effort to halt the dollar’s rise is unlikely (and should be aggressively faded as an unsustainable policy error if agreed).  Part II, Observations: Clash of the Themes, identifies and explains the Themes driving the transformation of the global political economy manifest in the observed tensions; and part III, Observations: Debt reality versus perception, explores the implications of the new growth paradigm for macro debt dynamics.